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Another PTC Bold Move in Acquisition of Axeda to Ehance Internet of Things Technology Offerings

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In yet another reinforcement of the market potential and increased interest in the echnology support of the Internet of Things (IoT),  product and service lifecycle management technology provider PTC made another strategic investment to expand its product portfolio.

The company announced a definitive agreement to acquire privately held Axeda, an IoT cloud-based technology provider offering technology that connects machines and sensors to the cloud, for a reported $170 million in cash. According to an SEC filing, the merger agreement has been approved by the boards of both PTC and Axeda, and upon closing, Axeda will become a wholly-owned subsidiary of PTC. To finance this acquisition, PTC expects to borrow the full acquisition price.

The announcement follows the prior acquisition of IoT applications provider ThingWorx in December, which was the other strategic move into this new area of IoT and its relationships with both product and service lifecycle management.

Foxboro Massachusetts based Axeda is a privately-held company with majority ownership from JMI Equity which dominates its Board. The core of Axeda technology is the ability to establish secure cloud-based connectivity and management across a wide range of machines, sensors and devices. The Axeda IoT platform is described as a “complete M2M and IoT data integration and applications development platform” that includes connectivity, data management, and device and asset management support services. Axeda Connected Machine Management Applications provide support in the monitoring, remote access, content distribution, configuration and dashboard reporting of various M2M applications.

Support of business needs include technicians remotely diagnosing and servicing ATM’s, medical devices and industrial equipment. The company’s web site cites installed base customers in Industrial manufacturing such as Sealed Air and Tyco, high tech manufacturers such as EMC and NetApp, among others, and a fairly long listing of medical device manufacturers that include Medtronic, Phillips, Siemens and Waters. Strategic partners are AT&T, Microsoft, SAP, and WiPro, among others. In June of last year, WiPro invested an undisclosed amount in the company to secure premium partner access to technology resources along with the ability to test further and deploy M2M technology applications from the WiPro M2MCenter of Excellence in Bangalore.

Of further interest, Axeda CEO Todd DeSisto’s background is cited as “service as a senior executive for multiple venture and private equity companies with successful exits.”

According to PTC, the prime motivation for this acquisition was to complement the ThingWorx rapid application development environment by addressing customer needs for connectivity and security.  In the briefing with equity analysts, PTC management boasted about the current strong growth already encountered in ThinWorx related bookings which were described as the equivalent of $4 million in equivalent license revenues during the past quarter. President and CEO James Heppelmann described the Axeda acquisition as “the best deal we’ve done in a long time”.  He further noted that much of the current IoT interest for embarking on IoT initiatives is coming directly from C-level executives who are pondering the potential to reconfigure existing product value-chains.

Supply Chain Matters attended the recent PTC Live Global customer conference in June where many customer presentations addressed the IoT scenarios for connecting product and service management business process needs directly with information on physical devices. Our sense was that these new forms of applications are clearly in early stages of development yet attendees were drawn to some of the sessions, including those that addressed the linkage of machine sensing with service management processes.

PTC has made yet another bold move to lock-up a promising technology platform.  Supply Chain Matters reiterates our impressions communicated with the prior ThingWorx acquisition. namely that this move adds another arrow in PTC’s ongoing efforts to compete with far larger enterprise software vendors in supporting a rather broad and extensive product and service management product suite that has the potential to leverage the new era of digital based manufacturing.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.


Service Supply Chains Put to the Ultimate Stress Test in the Automotive Industry

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Across the United States, besides the U.S. team’s accomplishments in the World Cup competition, another dominant traditional and social media based news headline reflects of the incredible number of automobiles and trucks being subject to product recall. 

The primary story focuses on General Motors, which after intense scrutiny from U.S. regulators and legislators regarding faulty ignition switches among multiple models, is recalling all sorts of models that are believed to have been exposed to a component design problem, faulty ignition or otherwise. Thus far in 2014, GM has announced 44 product recalls involving nearly 18 million previously sold vehicles. Today’s social and business media buzz blares that the vehicles been recalled thus far is more than the total number sold in the U.S. in 2013. 

In a previous Supply Chain Matters commentary, we called attention to product recalls involving airbags supplied by Japan based Takata Corp. that were expected to expand and involve millions of affected vehicles. Today, both Honda and Nissan recalled close to an additional 3 million vehicles worldwide to repair the subject airbag problem, bringing the total number involved with the airbag defect to roughly 5 million vehicles.

An article syndicated by the Washington Post News Service features the headline: More than 1 in every 10 vehicles on the road has been recalled since January.  That articles notes that the defects range from rather serious (faulty ignition switches, overheating exhaust parts, power steering problems) to other problems where automakers are now highly sensitized to any potential liability problem. This article goes on to note that in the spirit of crisis bringing opportunity, that there may be an upside of this extraordinary situation: “ … meaning that dealers get to have their old customers back in the showroom.  There, they can show off the new models and, at minimum, be in a position to sell drivers on some repairs they previously were not considering.

This author, for one, was completely floored by the above statement.  Are you kidding me!  One in every ten vehicle owners being inconvenienced to have to make a service appointment and bring their vehicles for service, and dealers have the “blank” to try an upsell these consumers?

Beyond the lunacy of such statements, there is a parallel and very critical challenge about to happen.

Automotive service focused supply chains are going to be exercised to their biggest stress test, ever.  All of the subject recalled vehicles will require some form of a repair part, one that has hopefully, been correctly modified to remediate a suspected problem. The sheer numbers imply that some inventory will have to be re-allocated from those destined to support ongoing production schedules for newer vehicles. In some cases, necessary repair parts will not be able to meet overall demand, and dealers will have to be very careful in scheduling service appointments and setting customer expectations.  During Toyota’s past product recall crisis process involving unattended sudden acceleration, Toyota worked directly with its dealer network to coordinate extended service hours for consumers, including nights and weekends.  Coordinated round-the-clock efforts among certain component suppliers and respective dealers were directed at insuring repair parts were adequately distributed and vehicles were scheduled for repair based on availability of necessary parts.

In short, the folks that do necessarily receive all the hero badges, those directly supporting service focused supply chains will be called upon in the coming weeks to literally save brand focused reputations.

Last week, Supply Chain Matters was invited to attend the PTC Live Global 2014 customer conference held in Boston.  One of PTC’s product suites is technology focused on Service Lifecycle Management (SLM) which has been amassed from previous acquisitions of vendors such as Servigistics, MCA, Kaidera, Xelus and others. In one of the sessions, PTC executives noted that expectations have never been higher on the customer and business side of service management. Yet, service management tends to suffer from immature business processes, not from a lack of dedication and effort, but rather a lack of broader understanding to the importance of service management.  Mingling in the hallways and networking sessions, we once again had an immediate sense of how dedicated these people are, and also how unappreciated and frustrating their efforts can sometimes be.

Across automotive, the service focused supply chain will be put to its largest and most expansive stress test from the scope of sheer numbers of vehicles and information required to coordinate service scheduling needs.  Some will rise to the task at hand.  Some will not.

One fact is very clear- auto dealers are advised to take-off their sales hats and concentrate on service and customer satisfaction efforts, in all dimensions.  That includes a very close, almost intimate relationship with those dedicated professionals who plan, manage and fulfill service parts planning and order fulfillment. Forget for the time being, the algorithms and calculations related to mean time between part failures.  It is going to be “all hands on-deck” augmented by information coordination and supply chain intelligence that separates the best in class performers.

Stay tuned.

Bob Ferrari


PTC Acquires Internet of Things Platform Provider ThingWorx

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Prediction Nine of our Supply Chain Matters 2014 Predictions for Global Supply Chains declared that the Internet of Things would gain considerably more momentum in 2014 and beyond. We based that prediction on new investment initiatives from industrial giants such as General Electric to build-out the technology and service technologies to make more machines interact with one another.

Yet another reinforcement of this increased momentum was yesterday’s announcement from product and service lifecycle management software provider PTC indicating that it had acquired ThingWorx, a provider of platform that allows firms to build and run applications that leverage machine to machine information exchange.  The acquisition included a sum of $112 million in up-front cash along with a two year earnings agreement that could net ThingWorx an additional $18 million.  The transaction has already closed and PTC indicated in its briefing call with analysts that ThingWorx will continue to operate as a separately branded company with its existing senior management team providing both platform technology for customers while affording PTC the opportunity to leverage this technology within the provider’s existing PLM and SLM product suites. ThingWorx’s revenue model is subscription based predicated on the number of connected devices.

ThingWorx was founded in 2009 by three previous senior executives at manufacturing intelligence portal vendor Lighthammer, after that company was acquired by SAP AG. Their goal was build a manufacturing and services focused platform that would leverage concepts of connected intelligence to operational systems, involving people, systems and devices. While PTC executives admit that ThingWorx is not currently profitable, they were willing to pay a considerable premium by investing in a “momentum” company that could provide much broader internal and external opportunities. The company provides opportunities to leverage PTC’s current customer base of asset intensive design and manufacturing firms including its high profile within aerospace and defense focused firms.

PTC will begin selling ThingWorx this quarter and believes the company can add an additional $5m-$7m in incremental boost to PTC’s annual revenues. The company also outlined plans for internally leveraging the platform in development plans over the next three years.

Supply Chain Matters initial reaction is that PTC has made a bold move to lock-up a promising technology platform.  Of course, how PTC balances the needs to continue to fund ongoing development and selling efforts by ThingWorx and at the same time insure an open standards based development platform will be interesting to observe in the coming months. The move adds another arrow in PTC’s ongoing efforts to compete with far larger enterprise software vendors. In the longer-term horizon, successful internal integration efforts if timely, could present rather compelling service management options for asset-intensive or service intensive customers.

Bob Ferrari

 

 


New Paradigms of the Service Supply Chain within the Aerospace Industry

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Our readers are more than aware of the ongoing unique challenges facing the global supply chains involving the aerospace industry.  Airline and aircraft leasing customers demanding more cost-efficient and innovative aircraft, coupled with breakthroughs in the development of lighter composite materials have resulted in the current unprecedented backlog of customer orders for OEM’s such as Airbus and Boeing. These respective OEM’s continue to be challenged with large scale multi-year production ramp-up needs while continuing to deal with engineering and production challenges.

Supply chain teams within aerospace are also fully aware that long-term maintenance and the service supply chain can be far more profitable and provide more opportunities for sustaining revenues than the product focused supply chain.  Today’s more technology laden aircraft represent far larger potential capital expenditures for airlines and over the past few years, aerospace OEM’s and component providers have come-up with creative leasing, financing and ongoing maintenance plans that reduce up-front capital and long term operating cost burdens.

This especially concerns the far more fuel efficient engines that will power the next generation of aircraft.  Airbus was able to seize first mover market advantage and book over 800 aircraft orders in months because of its collaborative co-development efforts with Pratt & Whitney in the development of the geared turbofan Pure Power engine offered on the A3320neo aircraft. Consider the fact that each plane comes with at least two engines, and aircraft engine manufacturers are bursting with order backlogs.  Pratt has secured orders for upwards of 2900 engines while CFM International, the joint venture among General Electric and Snecma, whose Leap engine is offered as an option for the Boeing 787 Dreamliner, has amassed over 4100 orders.  Engine manufacturers are keen to provide customers with long-term leasing and “power by the hour” maintenance programs where both airline customers and engine providers have incentives to insure that their engines provide reliable, continuous service at a lower overall cost.

The long-term profitability stakes are so high that Rolls-Royce, the sole engine provider for Airbus’s A380 superliner and the upcoming A350 has been involved in a high visibility public dispute with Air France-KLM over that airline’s independence in providing long-term maintenance for itself and other airlines. The airline was keen to continue its in-house maintenance program, so much so, that it was willing to hold hostage for months, a pending $6 billion order for 25 new Airbus A350 passenger jets until its demands for in-house maintenance were met. A Financial Times article in late August noted that the Rolls “Total Care” maintenance activities had already yielded Rolls over €1.5 billion in revenues for the first half of 2012.

While the long-term rewards for a robust service supply chain are lucrative, the product lifecycle management, information and supply chain challenges for engine providers are complex and require innovative approaches.  Rolls Royce has already experienced initial learning with its Trent family of engines powering the massive A380.  A catastrophic engine failure in 2010 involving a Qantas Airlines A380 was ultimately traced to a manufacturing flaw involving the assembly of engine oil tubes that initiated oil leaks resulting in the in-air failure of the engine. Since that time, Rolls has responded to a number of safety and maintenance inspection mandates involving the oil distribution systems of the Trent.

The General Electric GEnx engine is a powered option for the 787 Dreamliner. This new engine utilizes the latest generation materials and design processes to reduce weight, improve performance and lower maintenance. The rear turbine blades section is described by GE as featuring: “unique powdered metal rotors, specialized coatings, enhancing cooling techniques and new blade materials.” In late July, a brand new 787 scheduled for delivery to Air India experienced an inflight engine failure during final testing and the engine had to be returned for teardown analysis. During the same period, ANA (All Nippon Airways) had to temporarily ground part of its operating 787 fleet after unusual corrosion was found in the gearbox components of a Rolls Royce Trent 1000 engine. ANA, the original launch customer for the 787, indicated that the action stemmed from a flawed process that could leave a certain parts of the Trent 1000 engines vulnerable to early corrosion.

The sophisticated engines being introduced by aircraft engine manufacturers are breaking new ground in technological capability. They are akin to the breakthrough introduction of direct fuel injection systems over carburetors in automobiles so many years ago. Over time, engine manufacturers will eventually reach stated goals for performance, long-term reliability and uptime.  But as this occurs, the paradigm of the service supply chain shifts towards early warning predictability maximized uptime and needs for precise synchronization of service events. This includes on-board and self-communicating diagnostics providing early warning to operating issues, more responsive networks of service parts and service depot suppliers as well as highly networked maintenance facilities.

In our view, aerospace manufacturers need to consider increased investments in their service supply chain capabilities including deeper product lifecycle management integration and supply chain intelligence, collaborative execution and supply chain control tower concepts.

The service supply chain will no longer take a back seat to the product-driven supply chain, and for aerospace specifically, it will be instrumental in fulfilling long-term revenue and profitability business objectives.

Bob Ferrari

 


PTC to Acquire Service Management and Planning Provider Servigistics

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Product lifecycle management technology provider PTC announced today that it has signed a definitive agreement to acquire service parts planning and management provider Servigistics for approximately $220 million in an all-cash deal.  This deal is subject to regulatory approval along with other customary conditions.

This announcement is a rather significant event concerning the Service Parts Planning and the Service Lifecycle Management technology market segment.

About three years ago, in July of 2009, Supply Chain Matters alerted our readers to be watchful of software market consolidation in the service parts planning area. Our view was precipitated by the announcement that Marlin Equity Partners, an equity firm with a track record of buying and selling technology companies, had acquired Servigistics.  That game plan has obviously finally consummated with today’s PTC announcement.

For its part, Marlin managed to consolidate many known providers in the service parts planning and management domain, including the Service Network Solutions (SNS) arm of the former Click Commerce, which had previously consolidated the former Xelus, World Chain and Optum software offerings. At the time of the 2009 announcement, the web-native Servigistics platform was entirely different than the existing SNS software components, and many challenges were ahead in integrating the platforms. Marlin subsequently orchestrated the acquisition of service knowledge management provider Kaidara in April of 2010, along with a strategic partnership with business services provider Genpact in April 2011.  In 2009, Servigistics arch competitor MCA Solutions launched an aggressive campaign in urging the market to be exercise caution, since the landscape of independent software was narrowing.  The relationship remained highly competitive.

In a sudden and significant announcement just four months ago, Servigistics announced a termed merger with MCA Solutions. Our Supply Chain Matters commentary in March noted that whether the market considered it a merger or a takeover, the deal was consummated and the market had lost another independent provider. In its March announcement, Servigistics stated its intent to integrate various MCA software applications into the Servigistics Service Lifecycle Management portfolio. MCA provided Servigistics a strong service parts planning and optimization concentration in durable goods manufacturing, which included aerospace and defense, high tech, medical equipment among others, along with a stellar grouping of well-known customers.

As a product of today’s announcement, we now definitively know that the combined Servigistics amassed $80 million in current revenues but with single digit margins.  License revenues were in the order of 20-30 percent, implying that the bulk of revenues came from maintenance and added services.

Today’s PTC announcement adds yet another new dimension. In its press release and on the briefing call to analysts, PTC management indicates that Servigistics will be positioned to enhance the existing portfolio of PTC Service Lifecycle Management (SLM) solutions that address areas of warranty and contract management, service parts definition and technical information. PTC rightfully points out that its reputation in the market is focused on optimizing the way companies create and manage Product Lifecycle Management (PLM).  This acquisition provides a significant opportunity to now enhance that capability into areas of service parts planning and lifecycle service management dimensions. The reality however is that the portfolio, when combined, is offered to two entirely different buying audiences with different needs, one being engineering and product management, the other being services management and supply chain. In the analyst briefing session, PTC management hinted that the ultimate integration may indeed involve two stacks of technology components that are tailored to each buying audience, and bring together the technologies of both companies.  Another implication from today’s announcement is that major ERP, enterprise and cloud based software players such as IBM, Oracle, SAP and Salesforce.com must now deal with a more powerful competitive offering in this broader aspect of Service Lifecycle Management.

The most important takeaway from this commentary however is directed at existing Servigistics customers. Your vendor relationship has obviously been rocked yet again, and now is the time to take pause to ascertain what happens next.  Previous assurances or commitments regarding product integration and direction are now subject to scrutiny.  Supply Chain Matters also has open doubts as to whether a lot of progress was made in the MCA integration, and now, comes yet another integration challenge.

PTC has indicated to Wall Street that this acquisition brings opportunities for increased industry penetration and cross-selling opportunities.  It also indicated the potential for “cost synergies”, meaning cutbacks in redundant staffing and other activities, although PTC management pointed out that some key Servigistics staff will be offered incentives to remain. There does not seem to be any indication of whether Servigistics will remain an independent entity. The very best action that PTC can do once this merger is consummated is to clearly communicate to existing Servigistics customers a plan of customer support and future development intentions. Servigistics customers deserve no less since the road has been littered with previous intents and commitments.

Aftermarket service management has evolved to be a very critical component of business strategy with highly significant revenue potential for manufacturing firms.  The technology and innovation landscape supporting this critical area has undergone tremendous change, no thanks to Marlin Capital Partners. The challenge now shifts to PTC to provide additional innovation with compelling technology alternatives to manage both business process and agile decision-making for this area, while providing existing service management customers a viable strategy of support for existing needs.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.


Servigistics Announces the Merger of Competitor MCA Solutions

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Today marks a significant announcement concerning service management and service parts planning software technology. Service Lifecycle Management provider Servigistics today announced that it has completed a merger with MCA Solutions, a provider of service parts optimization technology.  Some readers may argue whether this is a merger or a takeover, but regardless, the deal is done.

Both companies are private and obviously no financial details have been disclosed regarding this merger. Obviously, the investors behind MCA were looking to execute an exit strategy.

The other headline related to this news is that it was no secret that both of these vendors were previously fierce competitors in the market, with different cultures.

According to statements in the press release and a Q&A document provided on both companies’ web sites, Servigistics plans to integrate various existing MCA’s software offerings into the existing Service Lifecycle Management portfolio provided by Servigistics.  The original founders of MCA, both Dr. Morris Cohen, a member of the faculty at The Wharton School at the University of Pennsylvania, And Dr. Vipul Agrawal will remain with the combined company.

MCA Solutions, which was founded in 1999, is best described by its concentration on aftermarket service parts planning and optimization. MCA’s software is primary directed at durable manufacturing industry sectors that included aerospace and defense, automotive, high tech, consumer electronics, medical equipment and others.  Existing named customers include among others, Airbus Military, Boeing, Bombardier, Briggs and Stratton, KLA Tencor, Lockheed Martin, Panasonic Avionics, Pratt and Whitney, Rockwell Collins and Tellabs. The software itself originated from the concepts, algorithms and methodologies advocated by its original founders, Dr. Cohen and Agrawal, and are currently offered in both a traditional behind-the-firewall and one-demand platforms.

For one of the most comprehensive overviews of MCA’s capabilities, readers can review the March 2011 profile analysis penned by fellow industry analyst colleague and friend, P.J.Jakovljevic published by Technology Evaluation Centers.

Supply Chain Matters had the opportunity to speak with Mark Vigoroso, Senior Vice President, Global Marketing and Alliances at Servigistics and we were able to ascertain some further background.  General conversations regarding the bringing together of both companies began about 90 days prior but accelerated in the last 30 days.  The intent of this merger is to capitalize on the best of both companies in terms of intellectual property, people and services for customers.

In July of 2009, Supply Chain Matters commented on potential market consolidation within the service parts planning software area.  The catalyst at that time was Marlin’s acquisition of both Servigistics, and three operating units of Click Commerce, which included Service Network Solutions (SNS) and Contract Service and Management (CSM).   The Click SNS business consisted of the aggregation of many former service parts planning providers, the most notable being the former Xelus. Other former names included World Chain and Optum. At the time, Marlin noted that the CSM business would be integrated with Emptoris, a strategic sourcing and procurement vendor that Marlin acquired in December 2008. Emptoris has since been acquired from Marlin by IBM.   Marlin has also orchestrated for Servigistics an acquisition of post-sales service knowledge management vendor Kaidara in April of 2010, and a strategic partnership with Genpact In April 2011, a major business process services provider. That partnership was targeted to combine Servigistics technology with Genpact’s aftermarket services operations expertise.  Our 2009 commentary was premature in timing but that is more of a reflection of the tenaciousness and attractiveness of MCA Solutions in the current market.

This newly announced merger has the potential to add deeper and broader industry coverage and establishes Servigistics as a formidable competitor to existing service parts and management technology offerings being provided by major ERP providers such as SAP and Oracle, or other best of breed vendor Baxter Planning Systems.

As with many of these announced acquisitions, existing MCA customers will have to wait and observe how the two companies actually come together, especially since original buying choices may have opted to not select the Servigistics platform for various considerations.  A concerted outreach communications effort was initiated yesterday by Servigistics senior management to assure existing MCA customers that their existing software will be supported for as long as necessary. For its part, Servigistics is acknowledging an obvious overlap in solution areas and is further communicating that it will combine the strengths of each platform in a future offering.  Over the longer horizon, MCA customers will eventually be offered the option to move toward a broader, more comprehensive Servigistics service management platform. Also being communicated is that existing MCA customers have the opportunity to complement their existing software with other Servigistics offerings if they so choose.

MCA customers can also anticipate an upcoming town hall session, where Servigistics management will address longer-term strategy. This session to be held in conjunction with the annual Servigistics customer conference at the end of April.

These latest developments should also prompt firms who are still seeking or evaluating future implementation of service management and decision support software to evaluate Servigistics capabilities in the context of executing a broader market vision related to comprehensive service management needs.

Regarding the longer term outlook for both of these combined companies, Supply Chain Matters speculates that other future announcements related to Servigistics are still yet to come, given Marlin’s previous history with supply chain technology vendors such as Emptoris.  Marlin and Servigistics are obviously assembling comprehensive software, service management intelligence and business process services capabilities with powerful market leverage and this will capture the interest of many of the existing enterprise IT market players.

Manufacturing and service firms have long discovered the increasing critical importance that aftermarket services contributes to revenue, product and profitability business objectives. The bottom line takeaway from this announcement related to MCA Solutions is that your potential list of technology choices and associated bargaining power has just been narrowed.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


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